Pound to Euro Forecast: GBP Underperforms on UK Tax Hike Fears

Modified: Friday, 1 August 2025 20:21 BST - Written by Tim Boyer

STORY LINK Pound to Euro Forecast: GBP Underperforms on UK Tax Hike Fears

The Pound Sterling has remained on the defensive in global markets with the Pound to Euro exchange rate (GBP/EUR) retreating to near 1.1467.

Domestically, a very negative business confidence survey grabbed the headlines, although the overall evidence was mixed with a rival survey at a 9-year high.

The extreme divergence will cause significant confusion and cause headaches for the Bank of England, but traders put greater weight on the negatives at this stage.

Equity markets posted significant losses amid fresh unease surrounding US tariffs and the wider trade policy.

The more vulnerable risk tone unsettled the Pound in global markets with markets uneasy over the global economic implications amid fears of a re-run of April turmoil.

The IoD business confidence index plunged to a record low of -72% for July from -53% the previous month.

According to IoD chief economist Anna Leach; “Last year, damaging speculation around tax rises in the lead-up to the 2024 Budget caused many firms to pause investment and hiring decisions, contributing to six months of near-zero economic growth. We’re now living with the economic consequences of those tax hikes, even as uncertainty around future costs once again builds.


She added; “With ripple effects through the economy from tax changes and signs of consumer retrenchment, many firms report that they are struggling to plan amid a cacophony of risk.”

In contrast, the Lloyds Bank business barometer confidence index edged higher to 52% for July from 51% previously and the strongest reading since 2015.

The services sector was significantly more confident, but this was offset by weaker confidence in all other sectors.

There was a marginal easing in inflation pressures, but planned price increases remained well above the long-term average.

Hann-Ju Ho, senior economist for Lloyds Commercial Banking, was broadly positive on the outlook; “This continued upward trend reflects a growing sense of cautious optimism across the UK economy, underpinned by both improved trading prospects and broader economic sentiment.

She added; “Despite ongoing cost pressures, firms are positioning for growth, particularly in services where hiring and investment plans are accelerating.”

The UK PMI manufacturing business confidence index was revised slightly lower to 48.0 in the final reading from the flash reading of 48.2, although this was a six-month high for the index.


Rob Dobson, Director at S&P Global Market Intelligence commented; “The UK manufacturing sector is starting to send some tentatively encouraging signals, with the downturn moderating in July as factory output came close to stabilising and future output expectations hit the highest since February. “However, it’s clear that there’s no assured path back to strong growth.”

Euro-Zone headline inflation held at 2.0% for July, marginally above expectations of 1.9% while the core rate held at 2.3% with little Euro impact.

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TAGS: Currency Predictions Pound Euro Forecasts